ERIC submitted comments to the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) on proposed rules defining “major swap participant” and “major security-based swap participant” under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The group urged regulators to exclude from the major participant definitions employee benefit plans that are subject to the fiduciary provisions in Title I of the Employee Retirement Income Security Act (ERISA), noting that the investment activities of ERISA Title I plans are already extensively regulated and pose little risk to the U.S. financial system.

ERIC suggested that if the agencies decide to not exclude ERISA Title I plans from all aspects of the major participant definitions, then they should clarify the exclusion for positions maintained by employee benefit plans, and that a variety of different risks are “directly associated with the operation of the plan.”

The group explained that employee benefit plans often use swaps for purposes of portfolio rebalancing, diversification, or gaining exposure to alternative asset classes, and they are essential to the plan’s operations. Accordingly, and because swaps and similar hedging is already governed by strong fiduciary regulations, the major participant definitions should make clear that swap positions maintained by employee benefit plans should be excluded from Dodd-Frank regulations that were in fact intended to regulate broad-based financial institutions.

Business Conduct Standards

ERIC submitted a separate comment letter to the CFTC on the proposed business conduct standards for swap dealers and major swap participants dealing with Special Entities under the Dodd-Frank Act.

The group contends that many of the business conduct standards that apply to swap brokers and major swap participants duplicate protections already fully developed, understood, and strictly enforced under ERISA. Therefore, they confer no benefit on ERISA-governed plans, according to ERIC.

“The greater danger, however, is that the standards will actually harm these plans by making swap transactions prohibitively expensive, or by discouraging swap dealers and major swap participants from dealing with ERISA-governed plans at all,” ERIC said in the letter.

The group contends that “[t]his is not a hypothetical concern: some ERIC members have already been told by swap dealers that the dealers will cease to engage in swap transactions with ERISA-governed plans if the dealers are subject to the requirements set forth in the proposed rule.”